Option 2: Economic Critique

Imagine that your Learning Team is a group of international reporters. You have been tasked with describing and critiquing the current state of the U.S. economy. Describe the current state of the following economic factors: Unemployment Expectations Consumer Income Interest Rates Yes Yes Yes Yes

Identify the existing effect of the economic factors on aggregate demand and supply Yes Identify fiscal policies that are currently being recommended by government leadership. Yes Evaluate the effectiveness of those fiscal policy recommendations from the Keynesian and Classical model perspectives. Yes Write a 1,050- to 1,400-word newsletter that summarizes the results. Grade: 9/10 The LT did a good job pulling the information together writing up the blocks and formatting the document. The narrative was interesting; it seemed to be a bit torn by differing philosophies amongst the LT members. This restricted what the LT could do in targeting concepts given the views of the Team expressed in different parts of the paper. The typeface for something of this nature would normally be larger if one were anticipating that all ages, young and old were going to have equal chance of reading it. Thank goodness for the magnifying capability. Well done.

 FISCAL POLICIES........ 1

CURRENT EFFECTIVENESS KEYNESIAN & CLASSICAL VIEWS CURRENT STATE ....... 2 UNEMPLOYMENT EXPECTATIONS CONSUMER INCOME INTEREST RATES AGGREGATE SUPPLY & DEMAND ....................... 2 IMPACT OF ECONOMIC FACTORS

ISSUE 1

VOL. 1

January 27, 2014

THE CURRENT STATE OF THE U.S. ECONOMY... CRITIQUE ON THE IMPACT OF ECONOMIC FACTORS.

Economic Focus

"Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it." ~Ronald Reagan~

Fiscal Policies
Not too long ago there were some great incentives offered by the government for taxpayers. New homeowners were able to receive $8,000 in their tax refund just for buying a house and students could get reimbursed the cost, in the form of a refund, of any computer purchased for the purpose of school (American Recovery And Reinvestment Act: Tax Cuts, Benefits For Individuals, 2009). Why is this kind of deal not offered to everyone all the time? Well, the state of the economy is a direct influence of what the government decides to do.

Current Fiscal Policy Recommendations

There are policies that are currently being recommended by government leaderships. Generally, fiscal policies are implemented first by the President drafting a budget proposal. Actually, they are normally developed by the Congress. Then, the House and Senate have to hold multiple hearings to discuss whether to approve it or amend any sections. Currently, there is a battle occurring regarding unemployment benefits. The Senate and the House are two leaderships handling a bill known as Emergency Unemployment Compensation Extension Act. This bill is considered a fiscal policy because it involves the spending of government money and is created by the Congress or Executive. This bill intends to extend the benefits that were set up during a recession period; however, congress did not enact the extension and instead passed a 3 month extension to allow more debate whether to enact the bill or not (Bill Summary & Status 113th Congress (2013 -2014) S.1845. (2014).

Effectiveness of Fiscal Policy in Keynesian and Classical Perspective

There are two types of economic perspectives, the Keynesian and Classical. There are also the monetarists and a few others.The Keynesian economists focus on short run issues, whereas the Classical economists focus on the long-run views. The proposed fiscal policy of the Emergency Unemployment Compensation Act you can be analyzed in its effectiveness with the two types of views. Democrats say they're trying to help Americans struggling to pay their bills until they get back on their feet and that failing to pass an extension will tank the economic recovery (Abdullah, 2014). The Keynesian economists view of the proposed fiscal policy promotes government spending to jumpstart the growing economy faster. In contrast, according to the Republican Senator Mark Kirk of Illinois he has people that would benefit from the federal unemployment program and would like to help but is more concern for the adding to the deficit of the country in an irresponsible way (Abdullah, 2014). The Classical view comes into play when Republican Mark Kirk points out the harms in the end caused by such a short term fix. ???

The Current State:

The impact of Economic Factors on Aggregate Supply & Demand
Keynesian fail manipulating aggregate demand does not equilibrate the supply and demand for inputs ~F.A. Hayek~

Expectations
Changes in expectations about the future can change the way a consumer will spend. If a consumer expects their income to rise, they spend more of the income they currently have, meaning current consumption spending increases and saving decreases. A widely held expectation of surging inflation is increasing aggregate demand today because of consumers wanting to buy products before rising prices. This actually occurs after the fact when inflation has begun to steal value from the paycheck.We dont see that at the moment. If suppliers feel that goods will sell at higher prices in the future then the willingness to sell now will be low. If consumers expect inflation to go up in the future, then there is a tendency to buy now usually causing aggregated demand to increase. If their expectations shift meaning they expect prices to fall in the future then the aggregate demand will fall. Businesses that have big inventory accelerate production or purchases. If a business has low or no inventory may cut back production if they expect labor cost to rise. In interestrate expectations, real estate construction may slow if the rates were expected to. Conclusion?

more production creates more income for the owners or shareholderscompany, the workers, and more money back into the economy.

Interest Rates
Interest is the rental or lease chargeds to borrowers by lenders for the use of assets including cash, consumer goods, vehicles, or buildings. Annual percentage rates (APR) and annual percentage yields (APY) fluctuate with the policies of the Federal Reserve Board and the rise and fall of inflation. The determination of interest rates normally comes from the Federal Reserve Board known as Fed Funds Rates and the yields from treasury notes (Wall Street Journal, 2014). The current APR ranges from 4.33% to 3.09% and the Treasury APY ranges from 4.41% to 4.69% (Wall Street Journal, 2014). In terms of aggregate supply and demand, interest rates and credit available are inter-related and can have a positive or negative influence on supply and demand. Credit extended by credits cards positively influence demand and supply allowing people to afford to buy more goods and services. On the other hand, higher interest rates could have a negative influence on supply and demand because more people are not willing to pay more for goods and services they get on credit.

Unemployment
In the United States, unemployment rates measure the percentage of the unemployed population actively searching for employment that are employable, which eliminates underage, elderly, and disabled people from the equation. The unemployment rate is 6.7%, which is on a steady decline from the 7.8% at the beginning of the year (Trading Economics, 2014). The unemployment rate is the lowest it has been in five years with employment increases in retail trade, professional and technical services, leisure and hospitality, transportation, warehousing, health care, and manufacturing jobs (Trading Economics, 2014). The primary reason unemployment remains high is severe shortfall of aggregate demand for goods and services and the country is producing well below its capacity (Washington, 2010). Many economists argue that the rise in long-term unemployment is the result by the prolonged decline in aggregate demand because depressed hiring rates and the decline in traditional manufacturing jobs compounds the exit rates for unemployment (Washington, 2010). Many people who lost their jobs are finding it harder to find new employment within their fields, thus creating the need for more education and career changes. Granted, other structural factors affect the unemployment rate such as the mismatch of job skills or erosion of long-term skills workers with new jobs, and the extension of unemployment benefits beyond the expected periods of unemployment. Keynesian economists believe the government should do more to stimulate the demand for goods and services in this country, which will help eliminate cyclical unemployment (Washington, 2010). Nicely presented and seemingly quite reasonable.

References Abdullah, H. (2014, January 7). Politics at play under the surface of unemployment benefits debate. CNN. Retrieved from http://www.cnn.com/2014/01/07/p olitics/unemploymentvote/index.html American Recovery and Reinvestment Act: Tax Cuts, Benefits for Individuals. (2009, Jun 11). US Fed News Service, Including US State News. Retrieved from http://search.proquest.com/docvie w/471910341?accountid=458 Bill Summary & Status 113th Congress (2013 -2014) S.1845. (2014). Retrieved from http://thomas.loc.gov/cgibin/bdquery/z?d113:SN01845:@ @@L&summ2=m&#major action Delong, J. b. (2008, April 7). https://articals.economictimes.co m. Retrieved from Economic times.Trading Economics. (2014). United States Unemployment Rate. Retrieved from http://www.tradingeconomics.com /united-states/unemployment-rate Wall Street Journal. (2014). Investing Interest Rates. Retrieved from http://www.marketwatch.com/tool s/pftools/ Washington, R.A. (2010, April 19). Recovery: Is it the Aggregate Demand? The Economist: Free Exchange. Retrieved from http://www.economist.com/blogs/f reeexchange/2010/04/recovery_1

Consumer Income
Consumer income is known as discretionary income. This income is left over after living expenses and taxes have been removed or deducted from ones salary wages. Consumer income is the amount of money a person has left over to spend, save, or invest. The more discretionary income a person has the more goods or services one can buy. Based on information from the Bureau of Economic Analysis, consumer income rose in December 2013. Goods producing industries, manufacturing, and service producing industries are areas that had an increase in personal income net revenue in December 2013 some of which may have become consumer income. Because of Tthe increase in personal income in the short time, this attempts to get stimulates the economy running by providing spendable income for consumers. By hiring more workers, companies can produce more goods;

Melissa Keck, Miguel Quiroz, Mindy Swan, & Yuma Vuono ECO 372 - MACROECONOMICS THOMAS BYERS